How Aging Demographics and Globalization Will Change the Way We Live

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Meeting the Demographic Challenge with Older Workers and Women

A March 11 article in the Wall Street Journal touched on a major but frequently overlooked challenge facing the economy, aging demographics. A new book, Thirty Tomorrows deals with this matter, thoroughly explaining how decades of declining birth rates have slowed the flow of new entrants into the workforce even as the retirement of the baby boom and increasing longevity are increasing the overhang of dependant retirees and how this lopsided mix of producers and consumers will distort finance and constrain economic growth prospects. This is no place to duplicate that careful treatment, but a single comparison might serve to give a sense of the extent of this challenge. By 2030, the number of working age in this country available to support each retiree will fall from an already low 5.2 to a mere 3.3, a 37 percent drop in the relative number of tax-paying, pension-contributing producers.

The newspaper article, by Nicholas Eberstadt and Michael W. Holdin and entitled “America Needs to Rethink Retirement,” concentrates on alleviating this strain by getting people to seek longer careers. They make a number of helpful suggestions, from altering the way the government reports employment numbers, to offering firms tax credits to train older workers for second careers, to making pensions portable, to making work spaces age friendly with softer floors and the like. All they say is interesting, surely useful, and well worth reading, but as Thirty Tomorrows shows, there is much more the nation can do to alleviate its relative labor shortage with older workers and by encouraging women to participate more in the workforce.

One critical adjustment could go a long way to convincing people to postpone their retirement. If, in the later stages of their career, they could cut back on the hours and intensity demanded by the job, staying on would look much more attractive than it currently does. But simple as such a suggestion is, it will not come easy, for it would force changes in long-standing practice, most notably in the deep-seated tendency to rely on seniority pay. Forever it seems, employers have paid the highest compensation to the workers with the longest tenure. Hard as it will be to alter such established practice, demographic pressure in coming years promises to force the change. Actually some companies are already moving in this direction. IBM, for instance, has developed a separate consulting group, drawing older workers from across the firm and inducing them to postpone their retirement by allowing them to work only 60 percent of the usual hours and, of course, adjusting their pay accordingly. More firms will undoubtedly follow, as demographic trends make it harder to find qualified workers.

There are also significant opportunities with women. Though second wave feminism has brought many women into the workforce, still women’s rates of participation (at 70 percent) remain significantly lower than mens (at 90 percent.) Since family obligations, explain most of this difference, help with child care is key to raising the participation of women. Here there are a number of avenues to affect change. Employers could ease policies to allow release time for parents to ferry their children to and from school to other supervised activities. They could offer compensation in the form of subsidized child care. Where large groups of employees gather, employers might offer on-site child care. Even more radically, economic need might convince the authorities to allow parents to enroll their children in schools near their work instead of near their home. Indeed, employers might induce such a change by offering to improve nearby schools with extra financing. It would encourage parents and offer employers a cheaper way to attract staff than with premium wages. All would benefit from government tax breaks, though the impending shortage of workers will apply ample pressure on its own.

Clearly it will take major changes in the nature of the workplace to elicit these responses, but the potential relief is considerable. If, for instance, women in the United States were to raise their workforce participation rate half way to the male rate and older workers were to postpone retirement from the present norm of 65 years to 70, half the demographically induced shortfall in relative labor power would disappear. It is not enough to lift the entire burden, and Thirty Tomorrows spends much time on other avenues of assistance, but this alone would provide considerable relief and accordingly protect the nation’s prosperity.